Companies
‘Leela deal worth the price; such assets not built quickly’
Summary
- Brookfield’s Ankur Gupta and The Leela CEO Anuraag Bhatnagar say the business has doubled in terms of Ebitda, commercial growth and overall revenue
In less than six months after asset manager Brookfield acquired Hotel Leelaventure, the company that owned and operated the sprawling upper-crust hotels under The Leela brand, for around $500 million, covid-19 hit. Navigating through this challenging period, the company, now in its phase 2.0 and renamed ‘The Leela Palaces, Hotels and Resorts’, infused capital for upgrading its hotels portfolio, besides implementing automated processes. In an interview, Brookfield’s managing partner and head of Asia Pacific and Middle East for real estate, Ankur Gupta, and the hotel business’s chief executive officer Anuraag Bhatnagar, said the business has doubled in terms of earnings before interest, taxes, depreciation and amortization (Ebitda), commercial growth and overall revenue. Besides, it has expanded its presence from 8 to 12 operational hotels post-pandemic, including in Gandhinagar and Bengaluru. Edited excerpts:
Was the Rs3,900 crore ($500 million) investment the right price to pay for the Leela?
Gupta: Yes, it is a unique investment for Brookfield. Assets like these can’t be built overnight. The business had some elements missing. For instance, it was in bankruptcy. Most of our investments are for long term. Leela had its share of capital challenges which needed to be solved from day one. Prior to 2019, people had started saying that foreign capital did not take an interest in Indian hotels. It is because hotels are not an easy business. It’s not like buying a leased office building and giving it out on rent. You empty your entire tenancy every morning and fill it up again. It’s not easy, and it has an asset-heavy component. Ultimately, brands are built on assets. Who is really building these assets anymore? We are not competing with anyone in the hotel business. Competition for the Leela brand doesn’t exist in India.
What are the changes like when a hotel changes hands from a family-owned entity to a corporate?
Bhatnagar: The family brought a vision to the business. There was nothing incidental in the way the luxury was planned. Our job was to preserve that legacy. We now have access to capital, technology and best practices.
What will the strategy be from here on? Are you looking to build or manage hotels?
Bhatnagar: We are looking at key cities where luxury can be served: Goa, Varanasi, Kabini, Ranthambore, Ooty. We are open to all possibilities; managing is a great option, but also development and acquiring properties. All the options are on the table. We are actively looking at the right markets to go international, and that should happen in the next two years.
Why did you let go of The Leela, Goa, that you managed?
Bhatnagar: It was a management decision. However, we are looking at Goa seriously for a great luxury destination with a good beachfront to build or explore as part of our business development objective. We still own 5 of our 12 hotels. The remaining are managed. A lot of companies are moving towards an asset-light model, but it’s important to have a good blend. We now want to be in every luxury destination. Ideally, 20-25 hotels within two-three years. This will include new builds and flagging.
Are you not in a hurry to scale?
Bhatnagar: A company can either be a house of brands or branded house. We choose to be the latter.
How have the revenues been? Has your predominantly international clientele returned to pre-covid levels?
Bhatnagar:In terms of average daily rates and margins that we operate in, our hotels are doing well. We are significantly higher in rates, and occupancy has returned to pre-covid levels. We have seen that our customers are okay to pay more money provided the asset and experience is worth it. People are travelling better, spending more on themselves, depending on how good the luxury product is. Earlier, we used to get about 65% international travellers. We are now 50:50. To bring in more international travellers, there is a lot to be done in terms of ‘Brand India’ marketing globally, but we are getting there.
How much has the G20 and other events like the cricket World Cup contributed to 2023’s business for you?
Bhatnagar: For the World Cup, we see a spike. But as a brand, we don’t want to be seen as opportunistic at audacious levels to turn away those who patronize our hotels. These special events, while they contribute a lot, we are still mindful.
But will this demand sustain in 2024?
Bhatnagar: Next year will be the year of the corporate. In the next three or four years, demand will outpace supply in the luxury hospitality business. My only word for caution is that we must reinvest in the services and not just be opportunistic. In three years we will likely be the third-largest economy. Luxury is becoming more democratic now. The luxury customer in India has become younger, between 28-36, and about 70% of these customers will be keen to spend on experiences, as per a research we did with a partner.
